Best Franc Run Since Brexit Not Enough to Force SNB Intervention

(Bloomberg) -- The Swiss franc’s biggest rally since 2016 has grabbed much attention but it probably isn’t enough to trigger central bank intervention.

Declines in the so-called sight deposits held with the Swiss National Bank, a closely watched gauge of foreign-exchange intervention, indicate that the recent bout of franc strength hasn’t prompted the monetary authority to step in. SNB spokeswoman Silvia Oppliger declined to comment. The currency is still weaker versus recent years’ average levels, suggesting it hasn’t strengthened enough to threaten the SNB’s key policy objective of boosting inflation.

The franc outperformed most peers versus the euro this year as the recent stocks rout boosted its haven appeal, and the 2.3 percent gain over the past month was the biggest since the U.K.’s Brexit referendum in 2016. It was at 1.1524 per euro on Tuesday, after averaging 1.11 last year. Bloomberg’s currency-survey consensus is for the franc to fall to 1.20 by year-end, suggesting the recent rally was just a blip in a broader weakening trend.

“Current levels in euro-franc are not so shocking that the SNB would need to worry,” said Georgette Boele, senior currency strategist in Amsterdam at ABN AMRO Bank NV. “I would be surprised if the SNB is intervening as the move is not substantial enough.”

SNB President Thomas Jordan reiterated last month that the franc’s high valuation was the reason for its decision to maintain an expansive policy stance. Still, reasons for the monetary authority to engage in a full-blown currency intervention are seen as dwindling.

Sight Deposits

Sight deposits, commercial banks’ cash held with the SNB, declined for a second week in the period through Feb. 9, according to the most recent data. A jump in the amount is often seen as a signal of possible intervention. The SNB admitted to currency-market activity in 2015 and 2016.

Calling the latest drop in sight deposits “slightly surprising,” ING Bank NV’s currency strategist Viraj Patel said that “maybe the SNB was tolerant of external conditions last week.” Not only was the recent turmoil in equities seen as contained within that asset class, but strategists also see the yen as being the preferred haven to the franc in times of market upheaval.

“Equally it’s tough to lean against the wind when markets are so volatile as they were,” London-based Patel said. “History suggests it’s best to just weather the storm but show a bit of presence to stem any major volatility.”

--With assistance from Catherine Bosley

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma